FDI in defence- boon or bane?

Harsha Kakar
The Government announced the enhancing of FDI limits to 100% in defence production last week. The first comments against the announcement was made by Mr Anthony, the former defence minister, who stated that the action could be a national security risk. The anti- FDI lobby was mostly of rival political parties, who similarly claimed its impact on national security. This is the standard Indian custom that comments are made with no justification or reasoning. The policy needs to be realistically assessed as FDI with local availability of defence equipment could turn out to be a benefit for the military.
India is presently amongst the largest importers of military hardware. India’s imports flow from a diverse set of nations mainly Russia, Ukraine (for spare parts), Israel, France and the US, in addition to others. Russia also supplies limited military hardware to China and India’s latest planned procurement, the S-400 Missile Defence shield, is also being imported by China. The US supplies military equipment to Pakistan, whether it would continue, time would dictate. Israel, however, neither exports to China or Pakistan. The equipment that India employs is already in service with exporting nations and their allies.
The entire process of trials followed by long drawn periods of negotiations always delaysdeveloping much needed capabilities. The Rafale deal is a clear example. In almost every case, especially during the last UPA tenure, defence deals were scrapped at the final stage, due to claims of kickbacks. The Agustawestland is the latest in the list. The cancelling of contracts linked to firms associated with the company has even delayed the induction of India’s nuclear submarine by almost two years. The primary reason has been that foreign companies employ middlemen to push their deals on a commission basis.Investigation post the Agustawestland scam clearly proved that the company had officially earmarked funds for kickbacks. Expecting international companies to work without middlemen is almost impossible, as it is the middleman who interacts with different levels of Government and branches of the militaryto convince them of the efficacy of the equipment as also coordinates the trials phase.
The Indian Defence Research and Development Organization (DRDO) has succeeded only in limited spheres, while failing in most. The army’s hunt for a perfect personal weapon for the infantry has still to materialize. The army has also been unable to procure requisite bullet proof jackets for its troops. Based on a shortfall of over three lacs, the government has only been able to place an order for fifty thousand. The Rafale deal for the air force has still to be inked.
The manufacturing units of the Ordnance Factory Board (OFB), mainly those manufacturing ammunition continue to be plagued by poor technology. The reader may recount the recent tragedy at the Central Ammunition Depot (CAD) Pulgaon, which resulted in the death of nineteen defence personnel, including two officers. The blast was caused by faulty manufactured anti-tank mines leaking TNT. The OFB was contacted regularly to remove the mines, however they never responded. Ultimately the accident occurred. Being a Government organization with enforced monopoly,OFB can ignore calls for action. This is not the first time such an incident has occurred. Faulty artillery ammunition has resulted in deaths during training exercises which the army can ill afford. Faulty manufacture results in reduced trust in the equipment. No heads ever roll in the OFB or the manufacturing factory. The OFBcontinues to possess monopoly on production and supply.
Whenever India desires to purchase weapon platforms off the shelf, it necessitates changes in the equipment to suit its own defence needs and terrain conditions. This further delays induction and affects cost. There have been occasions when the manufacturers have had hesitations in fulfilling such requirements. Further in times of hostilities or imminent hostilities, when there is a surge in demand there is always a delay in procurement which affects preparedness.
Imports presently from a number of countries has never been considered as a security risk asthe poor level of DRDO technology has compelled India to seek imported weapons. Almost all equipment purchased come with riders on end usage, employment restrictions and upgrade commitments, especiallywhen procured from Western nations.
In case we consider the possible manufactures who are likely to set up a base in India, we can be certain that it would not be any China owned company nor its affiliates nor any, which supplies military equipment to Pakistan. This is an issue which the Government would ensure, as it has done with development of other sectors, including ports. The companies which would expand their operations into India would be either from the west or from Israel or even Russia. There would, in addition be riders, on approval of the Government before embarking on sale outside the country. Finally, it is only a manufacturing industry which provides jobs, which ‘make in India’ aims to achieve. An aircraft manufacturing company alone can easily create over twenty thousand jobs.
Therefore, the drawbacks which India presently faces, would be partially offset when factories are established within India. It would be wrong to assume that all military requirements would be met by in-house production. Imports would still continue, but on a reduced scale. However, with passage of time and tie ups with Indian business establishments, in-house technology would improve.
Another minor benefit would be that with time the Government could be in a position to plan the closure of the OFB board and its defunct factories, mainly those which produce low quality ammunition or equipment, known for accidents. Similarly, those DRDO establishments which have not been productive could also be closed. These form the tail of the military and would be ideal for reduction, rather than looking at uniformed manpower alone, as they also share the defence budget.
In the overall context, 100% FDI in defence is not a national security threat, but if realistically visualized, a benefit for the nation.
(The author is a retired Major General of the Indian Army)
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